Free Promos Don't Always Inspire Customer Loyalty

Giving freebies to customers doesn't always pay off for businesses hoping to generate a little goodwill, a new study finds.

The research from the University of British Columbia's Sauder School of Business discovered that giving a free bump in service can backfire for retailers if the perk is given randomly in front of others. The study discovered that consumers experience social discomfort when singled out for spontaneous special treatment, which may cause them to close their wallets and actually shop less with the business.

"Managerial wisdom guiding service and retail industries assumes that consumers get an uptick in esteem when they're allowed to skip a queue or get an upgrade," said JoAndrea Hoegg, a co-author of the study. "But our research shows that when people get unearned freebies in front of others, they experience a social awkwardness that makes them less inclined to consume."

As part of the study, researchers conducted a series of experiments in which they treated participants at a product booth in two different ways. One group received free personal care products in return for "customer loyalty" and another received free products with no explanation. In addition, some of the bonus transactions took place in front of observers while some transactions were kept private.

The researchers found that when the free samples were received with no explanation in front of observers, participants were less satisfied with them. The results also show that the decline in satisfaction was driven by feelings of social discomfort, and that those who received extra samples without reason browsed for a shorter time at the booth.

"Our research suggests that if a firm is randomly selecting people to receive perks, they should make sure they receive them in private," Hoegg said. "If doing it in public, it's best that everyone knows the customer earned the upgrade to avoid unwanted embarrassment."

The study, which will be published in an upcoming issue of the Journal of Consumer Research, was co-authored by the Sauder School's Darren Dahl and Lan Jiang from the University of Oregon.

Chad Brooks is a Chicago-based freelance writer who has nearly 15 years experience in the media business. A graduate of Indiana University, he spent nearly a decade as a staff reporter for the Daily Herald in suburban Chicago, covering a wide array of topics including, local and state government, crime, the legal system and education. Following his years at the newspaper Chad worked in public relations, helping promote small businesses throughout the U.S. Follow him on Twitter.